Wrapping Multiple Properties Into a Single 1031 Exchange

Multiple Property 1031 Exchange

Is it possible to wrap up 2 properties under a single 1031 exchange? In other words, can you sell 2 houses and turn around and build a 12 unit apartment and apply the 1031 exchange? Is this a valid scenario?

2 Potential Issues

There are two big Issues when combining the sales proceeds from multiple relinquished properties into one replacement property:

  1. Timing: the two sales closings should be clustered together so that the purchase of the new replacement property occurs within 180 days of the closing of the first relinquished property; and you must designate or identify the new replacement property within 45 days of the closing of the first relinquished property. Both time frames run concurrently.

  2. Value:  yes, you can combine and roll two relinquished property exchanges into one larger replacement property.

There are three general rules of thumb to quickly see if you will defer ALL of the recognition of gain.

  1. Typically you will acquire replacement property that is “up or equal” in Value* (price); {*net of sales commissions and customary transactional expenses} so the value of the two relinquished properties would be exceeded by the one larger replacement property.

  2. You will roll over all of your Equity (net proceeds) from the two relinquished properties into your replacement property.

  3. And to the extent that you were relieved of liabilities and DEBT, such as mortgages on your two old relinquished properties, the debt relief is offset by (1) new liabilities or mortgages taken on in conjunction with your purchase of the replacement property; OR (2) by investing additional cash in the replacement property equal to the amount of liabilities and debts that were discharged.

You can have a partial tax deferral if you miss these general benchmarks. Be sure to check with your CPA about these general rules of thumb, to make sure they apply to your specific situation.

  • Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

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Defer the tax. MAXIMIZE your gain.